Wang On Group Limited — M&A Activity 1999

Nov 8, 1999

Listed Company Information

WANG ON GROUP<1222> - Announcement WANG ON GROUP LIMITED Discloseable and Connected Transaction Acquisition and Lease Back of a Property LFL, a wholly-owned subsidiary of the Company, has entered into a provisional sale and purchase agreement (the "S&P Agreement") with YJL on 5th November, 1999 pursuant to which LFL will acquire the entire interests in a residential property at House 15, Greenery Villas Phase II, 3 Ma Lok Path, Kau To, Shatin, New Territories (the "Property") from YJL (the "Acquisition") at a consideration of HK$15,000,000 (the "Consideration"). Ms. Yau, the deputy chairwoman and director of the Company, beneficially owns the entire interests in YJL and accordingly the Acquisition constitutes a connected transaction for the Company under Chapter 14 of the Listing Rules. The Property is currently occupied by Mr. Tang and his family, the chairman of the Company. The Company proposed to enter into a lease agreement (the "Lease Agreement") with Mr. Tang following the completion of the Acquisition, whereby the Company will lease the Property to Mr. Tang (the "Lease Back") for a term of 2 years (the "Rental Period") at a rent of HK$90,000 per month. The Lease Back also constitutes a connected transaction for the Company under Chapter 14 of the Listing Rules. Each of the Acquisition and Lease Back constitutes connected transaction for the Company under Chapter 14 of the Listing Rules. The completion of the Acquisition and the entering of the Lease Agreement will be subject to various conditions, inter alia, approval of the independent Shareholders (as required under Rule 14.26 of the Listing Rules) at the SGM and Mr. Tang, Ms. Yau, Ms. Tang Mui Fun, Ms. Tang Mui Fong and Mr. Yau Yuk Tong (being relatives of Mr. Tang) and each of their respective associates (as defined in the Listing Rules) will abstain from exercising their voting rights in the SGM. An independent board committee comprising all the independent non-executive directors of the Company has been formed to advise the independent Shareholders of the Company about the Acquisition and Lease Back. Shenyin Wanguo Capital (H.K.) Limited ("Shenyin Wanguo") has been appointed as the independent financial adviser to advise the independent board committee of the Company as to the fairness and reasonableness of the Acquisition and Lease Back in so far as the interests of the independent Shareholders are concerned. A circular containing further details of the Acquisition and Lease Back and setting out the advice of the said independent board committee and the said independent financial adviser and the valuation report on the Property, together with the notice of the SGM, will be despatched to Shareholders as soon as possible. The Acquisition The S&P Agreement was entered into between LFL and YJL on 5th November, 1999 pursuant to which LFL agreed to purchase from YJL its entire interests in the Property. Parties Seller : YJL, a company wholly and beneficially owned by Ms. Yau Purchaser : LFL, a wholly-owned subsidiary of the Company Property The Property is located at House 15, Greenery Villas Phase II, 3 Ma Lok Path, Kau To, Shatin, New Territories. It is one of the 11 residential townhouses within Greenery Villas Phase II which are located in predominately low-density residential areas. The Property was completed in May 1986 which contains 3 storeys with its own carpark and garden. The gross floor area of the Property comprises of 2,489 square feet house area, 791 square feet roof area and 1,071 square feet garden area. It is currently occupied by Mr. Tang and his family. Details of the Property will be fully disclosed in the circular to Shareholders regarding the Acquisition, Lease Back and SGM. Consideration The Consideration of HK$15,000,000 in cash was determined at arm's length which will be payable by LFL upon completion of the Acquisition which will take place within two business days upon receipt of the independent Shareholders' approval of the Acquisition at the SGM. The Valuer appraised the open market value of the Property at approximately HK$16,000,000 as of 28th October, 1999. The Consideration represents a discount of 6.25% to the valuation of the Property as appraised by the Valuer. The Directors of the Company considered that the Consideration was fair and reasonable in so far as the interests of the Company and Shareholders are concerned. The Consideration will be paid out from the Company's internal resources. Conditions of the S&P Agreement The transaction contemplated under the S&P Agreement is conditional upon the approval of the Company's independent Shareholders at the SGM to be held around 17th December, 1999. Subject to the conditions being satisfied, completion of the S&P Agreement is expected to take place around 20th December, 1999. The Lease Back The Company proposed to enter into the Lease Agreement with Mr. Tang following the completion of the Acquisition, pursuant to which the Company will lease the Property to Mr. Tang for a term of 2 years. Parties Landlord : LFL, a wholly-owned subsidiary of the Company Tenant : Mr. Tang Rental Period 2 years from completion of the S&P Agreement Rent Pursuant to the Lease Agreement, the rent payable by Mr. Tang to the Company will be HK$90,000 per month during the entire Rental Period. Such rental income represents an average investment yield of approximately 7.2% per annum to the Company, based on the Consideration payable by LFL to YJL pursuant to the Acquisition. The Directors wish to state that the rental chargeable to Mr. Tang is determined at arm's length which represents a premium of 55.2% to the average monthly rental of similar types of properties in close proximity to the Property as estimated by the Valuer. The Directors consider that the terms of the Lease Back are fair and reasonable in so far as the interests of the Company and Shareholders are concerned. Conditions of the Lease Agreement The Lease Back is conditional upon (i) the Company's independent Shareholders approving the same and (ii) the completion of the S&P Agreement. Subject to the conditions being satisfied, the term of the Lease Back is expected to commence around 20th December, 1999. Reasons for the Acquisition and Lease Back The Company has been actively involved in property investments in the past few years, particularly in car parks and retail properties. Due to the Asian financial turmoil in 1997, the economy of the region had been badly hit which caused the slump of the Hong Kong property market. As disclosed in the annual report of the Company for the year ended 31st March, 1999 (the "Annual Report"), the Company has disposed a substantial portion of its investment properties for the repayment of bank loans so that the gearing and interest burden of the Company could be significantly reduced. The disposal of these properties also improved the liquidity position of the Company that allows the Company to pursue other investment opportunities. Apart from the Chinese wet market and shopping centre management businesses as disclosed in the Annual Report, the Company also intends to expand its investment portfolio in the high end residential properties, in view of the bottoming out of the luxurious property market of Hong Kong after the price adjustment that took place in the past two years and a possible turn around of that market in the coming years as the economy of Hong Kong recovers gradually. Hence, the Directors are of the opinion that it is now a good opportunity to start investing in luxurious properties in Hong Kong, which will generate a steady income stream to the Company. The Directors also consider that the Consideration for the Acquisition and the rent chargeable to Mr. Tang pursuant to the Lease Back is fair and reasonable in so far as the interests of the Company and Shareholders are concerned. The Directors wish to state that the Company will continue to look for good investment opportunities for the Company in order to improve its return to the Shareholders. Connection between The Company, YJL, Mr. Tang and Ms. Yau Mr. Tang : the chairman and a controlling shareholder of the Company who holds 61,314,000 Shares (or approximately 13.26% interests). Mr. Tang is also an alternate director of YJL. Ms. Yau : the deputy chairwoman of the Company. Ms. Yau is the beneficial owner of the entire interests in YJL in which she is a director. She is also the wife of Mr. Tang. YJL, Mr. Tang and Ms. Yau are therefore connected parties to the Acquisition and Lease Back under the definition of the Listing Rules. Shareholders approval The Acquisition and Lease Back will be subject to certain conditions, inter alia, the approval of independent Shareholders at the SGM to be convened by the Company. Mr. Tang, Ms. Yau, Ms. Tang Mui Fun, Ms. Tang Mui Fong and Mr. Yau Yuk Tong (being relatives of Mr. Tang) and each of their respective associates (as defined in the Listing Rules) will abstain from voting in the resolutions in relation to the Acquisition and Lease Back. SHAREHOLDERS' information An independent board committee ("Independent Board Committee") comprising Messrs. Lee Peng Fei Allen, Wong Chun Justein and Siu Yim Kwan Sidney, being all the independent non-executive directors of the Company, has been established to advise the independent Shareholders about the Acquisition and Lease Back. Shenyin Wanguo, has been appointed as an independent financial adviser to advise the said Independent Board Committee as to the fairness and reasonableness of the Acquisition and Lease Back in so far as the interests of the independent Shareholders are concerned. A circular containing further details of the Acquisition and Lease Back and setting out the advice of the Independent Board Committee and Shenyin Wanguo and the valuation report on the Property, together with the notice of the SGM, will be despatched to the Shareholders as soon as possible. Terms used in the announcement "Company" : Wang On Group Limited, a company incorporated in Bermuda with limited liability "LFL" : Lead Fortune Limited, a company incorporated in Hong Kong with limited liability "YJL" : Ying Jun Limited, a company incorporated in Hong Kong with limited liability "SGM" : Special General Meeting to be convened by the Company "Listing Rules" : Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited "Hong Kong" : Hong Kong Special Administrative Region of the People's Republic of China "HK$" : Hong Kong dollars, the legal currency of Hong Kong "Mr. Tang" : Mr. Tang Ching Ho, the chairman of the Company's board of directors "Ms. Yau" : Ms. Yau Yuk Yin, the deputy chairwoman of the Company's board of directors "Shares" : issued shares of the Company of par value HK$0.01 each "Shareholders" : shareholders of the Company "Directors" : executive directors of the Company "Valuer" : Messrs. C.Y. Leung & Company Limited, an independent property valuer appointed by the Company By the order of the Board Wang On Group Limited Chan Chun Hong, Thomas Director and Company Secretary Hong Kong, 6th November, 1999